Japanese export values rose 13.5 percent on year in May for the sixth straight increase, led by solid global demand for automobiles and Asian purchases of semiconductors, while export volumes were down for the fourth month in a row. The pace of increase was slower than the consensus forecast of a 16.1 percent gain but faster than the 8.3 percent rise in April. Import values rose 9.5 percent (consensus was an 11.4 percent rise) after rebounding 8.3 percent in April and falling 5.1 percent in March. The increase was led by continued solid demand for computers as well as crude oil and refined petroleum products whose import costs have been pushed up by the protracted weakness of the yen.

The trade balance recorded a ¥1,221.3 billion deficit (versus the median forecast of a ¥1,298.5 billion deficit) after showing a revised ¥465.6 billion deficit in April and a ¥382.4 billion surplus in March. It was narrower than a ¥1,382.3 billion (¥1.38 trillion) deficit in May 2023 and a record shortfall of ¥3,506.43 billion (¥3.51 trillion) hit in January 2023.

Shipments to China, a key export market for Japanese goods, posted their sixth straight increase after a year-long decline through November last year amid a gradual recovery in the world's second-largest economy. Japanese exports to the European Union fell on year for the second straight month, hit by lower demand for automobiles and steel. Exports to the U.S. remain robust, up for the 32nd straight month on autos, after hitting a record high amount in December 2023.

Econoday's Relative Performance Index (RPI) stands at plus 7, just above zero, which indicates the Japanese economy is performing largely as expected. Excluding the impact of inflation, the RPI is at plus 1. Japan's economy marked the first slump in two quarters in January-March, down 1.8 percent annualized, after it narrowly averted a second straight contraction in the final quarter of 2023. Looking ahead, the economy in April-June is expected to show modest growth of about 2 percent annualized as auto production resumed in March but more revelations of false safety test records in June, this time at Toyota Motor itself, instead of its subsidiaries, are clouding the growth outlook for coming months.

Japanese export values are forecast to rise 16.1 percent for a sixth straight year-over-year increase in May after rising 8.3 percent in April, led by automobiles, semiconductors and chip-making equipment as seen in the previous month. Import values are expected to climb 11.4 percent for a second straight rise after rebounding 8.3 percent on higher demand for computers, smartphones and drugs.

The trade balance is forecast to show a ¥1,298.5 billion (¥1.26 trillion) deficit after recording a revised ¥465.6 billion deficit in April and a ¥387.0 billion surplus in March. It would be narrower than a ¥1,382.3 billion (¥1.38 trillion) deficit in May 2023 and a record shortfall of ¥3,506.43 billion (¥3.51 trillion) hit in January 2023.

Merchandise Trade balance measures the difference between imports and exports of both tangible goods and services. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade.

Japan's merchandise trade balance measures visible trade and excludes services. Specifically it is the difference between imports of goods and exports of goods. A positive value indicates a trade surplus (exports exceed imports) while a negative value indicates a trade deficit (imports exceed exports). Movements in the trade balance reflect altered demand for Japanese exports which subsequently impact the yen's value and directly affect GDP growth because of the economy's dependence on trade.

The report gives insight into changing trends regarding Japanese trade. Such developments are especially important for Japan, which is an export-oriented economy that has historically experienced large trade surpluses and any change can have a dramatic effect on the domestic economy. Typically the headline number is the change from the previous year in yen along with the percentage change in exports and in imports from the previous year.